An Ageing Australia: Preparing for the Future

Commission research paper

This report was released on 22 November 2013. An errata was released on 17 June 2014.

The report focuses on the effects of ageing on economic output (underpinned by changes in population, participation and productivity) and the resulting implications for government budgets were current policy settings to be maintained. In that context, it will help inform the forthcoming Intergenerational Report (IGR) by The Treasury.

Download the errata

Frequently Asked Questions

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Key points

Media release

Contents

Data

Australia's population will both grow strongly and become older. Such slow but profound shifts in the nature of a society do not elicit the same scrutiny as immediate policy issues. The preferable time to contemplate the implications is while these near inevitable trends are still in their infancy.

Population ageing is largely a positive outcome, primarily reflecting improved life expectancy. A female (male) born in 2012 will on average live for an estimated 94.4 (91.6) years.

However, population growth and ageing will affect labour supply, economic output, infrastructure requirements and governments' budgets.

Australia's population is projected to rise to around 38 million by 2060, or around 15 million more than the population in 2012. Sydney and Melbourne can be expected to grow by around 3 million each over this period.

The population aged 75 or more years is expected to rise by 4 million from 2012 to 2060, increasing from about 6.4 to 14.4 per cent of the population. In 2012, there was roughly one person aged 100 years old or more to every 100 babies. By 2060, it is projected there will be around 25 such centenarians.

Total private and public investment requirements over this 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment.

Labour participation rates are expected to fall from around 65 to 60 per cent from 2012 to 2060, and overall labour supply per capita to contract by 5 per cent.

Average labour productivity growth is projected to be around 1.5 per cent per annum from 2012-13, well below the high productivity period from 1988-89 to 2003-04. Real disposable income per capita is expected to grow at 1.1 per cent per annum compared with the average 2.7 per cent annual growth over the last 20 years.

Collectively, it is projected that Australian governments will face additional pressures on their budgets equivalent to around 6 per cent of national GDP by 2060, principally reflecting the growth of expenditure on health, aged care and the Age Pension.

Major impending economic and social changes can create the impetus for new reform approaches not currently on the policy horizon. For example:

The design of the Age Pension and broader retirement income system might be linked to life expectancy after completion of the current transition to 67 years in 2023.

Using some of the annual growth in the housing equity of older Australians could help ensure higher quality options for aged care services and lower fiscal costs.

Wide ranging health care reforms could improve productivity in the sector that is the largest contributor to fiscal pressures. Even modest improvements in this area would reduce fiscal pressures significantly.

Background information

Ralph Lattimore (Assistant Commissioner) 02 6240 3242

Preparing for an ageing population now

A report by the Productivity Commission, An Ageing Australia: Preparing for the Future, has found that Australia is facing a major slowdown in its growth in national income per capita and productivity outlook at the same time that ageing will start to make major demands on the budgets of all Australian governments. Actions taken early can make the transition to an older Australia easier.

The Commission projects that unless 'luck or appropriate policies intervene', net national income per capita, the best single measure of national prosperity, may grow by only 1.1 per cent per annum over the next five decades. In the last 20 'boom' years, the yearly growth rate was 2.7 per cent.

Simultaneously, the Commission estimates that population ageing will place pressures on government budgets of 6 per cent of GDP by 2060, and reduce labour supply per capita. It projects that labour force participation rates will fall from 65 to 60 per cent.

The population aged 75 or more years is projected to rise by 4 million from 2012 to 2060. In 2012, there were roughly, one centenarian for every 100 babies. By 2060, it is estimated that there will be 25 such centenarians. Meanwhile, Australia's population will continue to grow strongly, and is expected to lie between 34 and 42 million people by 2060, with the most likely outcome around 38 million. Sydney and Melbourne are projected to each have a population over 7 million.

Peter Harris, Chairman of the Commission, said: 'The best time to develop policies that address the inescapable implications of demographic change is while the transition is in its infancy. It is a good time to start a debate and to float creative policy options.'

The report makes no recommendations, but raises three areas for policy consideration.

The design of the Age Pension and the broader retirement system discourages an active economic role by older people, notwithstanding their far longer life expectancy. The current arrangements are at best arbitrarily linked to life expectancy. The report examines indexing the age at which people might access retirement benefits to longevity. It notes that after completing school, current generations will otherwise spend nearly half their lives not in the labour force, mostly in retirement.

Many older people are asset rich, but income poor. Innovative ways of accessing just a small share of people's housing equity could leave them with assets that still grow, while improving services and relieving some fiscal pressures.
There appear to be large potential gains in efficiency in the health care sector. A policy agenda focused on lifting productivity in the health sector could relieve fiscal pressures, while not reducing service quality.

These attachments provide detail of the key models estimates that are presented in the An Ageing Australia: Preparing for the Future paper. The underlying data for all charts presented in the paper are also provided.